China Consumer Confidence Index Remained High in Q2, 2018

China Consumer Confidence Index Remained High in Q2, 2018

China’s Consumer Confidence Index (CCI), released by Nielsen, a global measurement and data analytics company, remained high in the second quarter of this year – the figure shrank to 113 points, a decrease of two points from the previous quarter.

Data from the National Bureau of Statistics showed China’s gross domestic product expanded by 6.7 percent year-on-year, slightly lower than the 6.8 percent from the first three months. But in the first half of 2018, GDP rose by 6.8 percent year-on-year. It indicated that the advance of supply-side structural reform continued to provide impetus to China’s economy, which laid a foundation for steady economic growth and high-level CCI.

Andy Zhao, president of Nielsen China, said: “As the global economic situation becomes more complex, China’s economy remained resilient. The structure and production efficiency of the economy are steadily optimized, and the transformation and upgrading of the economy continues to open new drivers for growth. That laid a solid foundation for high-quality economic development.”

Nielsen’s CCI index measures perceptions of local job prospects, personal finance and the willingness to purchase. Consumer confidence levels above and below a baseline of 100 indicate degrees of optimism and pessimism, respectively.

CCI remained high, East China Led the Increase

Nielsen’s report showed all three components of CCI remained high in the second quarter of the year. Local job prospects (75 points), personal finance (68 points) and the willingness to spend (60 points) continued strong run. Compared with the same period of last year, CCI has showed steady progress. Among them, local job prospects climbed by 7 points from 68 points in the same period last year, the largest expansion. The willingness to spend also witnessed relatively high increase of four points, from 56 points in the same period a year ago.

Andy said: “China’s economy has been increasing steadily by 6.7 percent to 6.9 percent year-on-year for 12 consecutive quarters, and its effect on driving employment rate continued to strengthen. At the same time, as reforms to delegate power, streamline administration and optimize government services deepened, China’s business environment has been improving, more market entities emerged and created a large number of jobs.”

“While the economy is growing steadily, the Chinese government ramps up efforts on the weak aspects of consumer industry. It promotes the ‘quality’ and ‘quantity’ supply of the sector, aiming to boost consumption upgrade and the willingness to purchase through stimulation of the environment,” Andy said.

By regions, CCI in East China jumped to 126 points in Q2, from 124 points in the first quarter, which continued to lead the increase of the index. Indicators in the east showed a steady and positive trend: personal finance rose to 84 points, from 81 points in the previous quarter; the willingness to spend increased to 73 points, from 72 points in the first three months; local job prospects stood at 82 points, the same as in the previous quarter.

“In the east, the dividends of optimizing and upgrading of the industrial structure have been unleashed. The region’s role as an economic stabilizer and propeller has become more prominent, and new drivers of economic development have emerged. It not only stimulated economic growth, but also brought more new consumption experiences. Consumers’ willingness to purchase has thus improved," Andy said.

By city tiers, CCI of the third-tier cities increased to 116 points in the second quarter, from 112 points in the last quarter –the most significant growth. The index in the second-tier cities and rural areas continued to maintain high levels: they were 113 points and 114 points, respectively. The index in the first-tier cities and fourth-tier cities remained stable: 111 points and 110 points, respectively.

Though CCI of first-tier cities declined in Q2, local consumers’ willingness to purchase remained stable – 64 points, the same as the previous quarter. Compared with last year, fifty-nine percent consumers in first-tier cities increased their household expenditure, much higher than national average of 46 percent, according to Nielsen’s data.

"Innovation drive is becoming the main focus of China, a country that is transforming and upgrading the economy and new drivers is replacing old ones. Fuelled by the new-economy sector, the first-tier cities are witnessing rapid economic growth. At the same time, the quality of supply has improved significantly, and such innovation is unleashing the consumption potential. The first- and second-tier cities have strengthened capability to influence surrounding areas, the third-tier cities’ economic development has accelerated, and the trend of consumption upgrading emerged, which brings more job opportunities and fresh consumer experiences,” Andy said.

New Retail Leads to Change of Consumption Module in First-tier Cities

With the burgeoning of new technologies such as artificial intelligence, Internet of Things, and big data, fresh products including intelligent robots, AR test mirrors, and unmanned shelves are shaping the new retail sector. New retail restructures the relationship among people, goods and space, with a greater emphasis on consumer-oriented.

Consumers in first-tier cities acquire more acknowledge of new retail, and they exert impact on the change of consumption mode. Fifty-four percent of the buyers in the first-tier cities have heard new retail stores, while 33 percent of the buyers have ever been to such stores. In comparison, 25 percent of consumers in the second- and third-tier cities have been to a new retail store.

In the first-tier cities, new retail model has exerted a significant impact on consumer shopping behaviors. Forty-two percent of consumers believe that shopping is more convenient, and 35 percent of them think that this (new retail stores) replace traditional ways and 29 percent of them increased buying frequency.

New retail gives consumer higher-quality products and better experiences. Nielsen found that compared to traditional stores, new retail stores have more fresh food (51%), are closer to homes/working places (39%), food is of higher quality (28%), queue time is shorter (27%), the stores have more imported products (21%), and services there are better (20%). So, new retail makes shopping more convenient, the environment is improved and the quality of products is higher.

Nielsen found that 33 percent of consumers were single, higher than 17 percent of traditional channels. Meanwhile, consumers preferred higher shopping frequency but lower value per transaction. Data showed that shopping frequency to new retail stores were 2.6 with 162 yuan per purchase on average – both figures were lower than traditional stores.

New retail prefers merged business to optimize consumption scenes. Thirty percent of consumers chose on-site cooking while 63 percent chose to eat in. Online and offline integration is reflected in the whole process of shopping. Eighty percent of consumers have used applications on their cellphones during store shopping.

Andy said: “As the first-tier cities are the center of economy, culture and innovation, local consumers have new demands for consumption upgrades. It has, to some extent, given birth to new economy and businesses, among which new retail is an example. Meanwhile, new retail provides consumers with better products and services, which, in turn, promotes consumption upgrades in first-tier cities."

Consumer-focused New Retail Marketing

Innovation module in new retail era is shifting from manufacturer-oriented to consumer-oriented. Top four challenges faced with FMCG’s innovation, according to Nielsen’s research, are fast-changing demand (67%), hard to innovate heroic new product development (54%), high cost but low return on investment (44%) and faster NPD launch cycle (33%). Manufacturer-oriented innovation takes about two to three years, while consumer-oriented innovation only need one to two weeks.

Customer-to- Manufactory (C2M) sales module, oriented from consumer, is gaining popularity. For example, social media e-commerce platform gradually shows advantages. These platforms build popular styles by lowering prices for group purchase through social media connection. They can produce by predicted demand accordingly, which effectively reduce inventory and raw material supply.

Andy said: “New retail is more about data connection and empowerment. Against this backdrop, the research and analysis of consumer data is significant. In this way, not only can you accurately identify the pain points of manufacturers, but also find effective solutions to optimize marketing.”

Fast-moving consumer goods and GDP growth in Q4 2018 was strongest in Asia-Pacific, and consumers in the region feel the best globally about their financial well-being. Comparatively, only 37% of consumers in Europe believe their conditions have improved over the past five years.

China’s Consumer Trend Index (CTI) amounted to 115 points in the first quarter this year, growing by two points from the previous quarter and nearly reclaimed the previous peak, according to Nielsen's latest study.